Is ERM Legally Required? Yes for Financial and Governmental Institutions,No for Private Enterprises

We examine whether enterprise risk management (ERM) is legally required for financial institutions (e.g., banks, securities brokerage firms, insurance, hedge funds and mutual funds), government entities, publicly traded companies, and private enterprises. We find that ERM is legally required for U.S. financial institutions and for some government‐sponsored enterprises. Legally required means required by U.S. statutes, federal case law, or U.S. regulatory agencies (e.g., Securities and Exchange Commission [SEC]). ERM is an important factor for rating organizations (e.g., Standard & Poor's [S&P]), but not legally required. We found no U.S. statutes or federal court cases requiring an ERM framework for private enterprises, although ERM is accepted as a value‐contributing best practice, and elements of ERM are practiced by some private enterprises. For publically traded companies, elements of ERM are required by federal statute, by the SEC, and by S&P. We suggest that if a private enterprise is sued in U.S. federal court alleging breach of a legal duty to practice ERM, the suit will likely be dismissed. We trace the development of ERM from a traditional risk management (TRM) base. Fortunately, ERM is recognized as a value‐contributing best practice in corporate governance even when legal standards do not require it.     

Hayek contra Pangloss on Evolutionary Systems

Some analysts have criticized Friedrich Hayek's theory of cultural evolution for implying that the rules, customs, norms, and institutions that emerge from the evolutionary process are necessarily efficient or desirable in all cases. This charge is unfounded. The present article defends Hayek versus his critics in two ways: First, it restates Hayek's own objections to the idea that cultural evolution produces optimal outcomes. Second, it shows, through an analogy with biological evolution, that Hayek's theory need not imply any such conclusion. Contrary to a widely held misconception, biological evolution does not produce organisms that are perfectly adapted to their habitats; insofar as cultural evolution shares common features with biological evolution, cultural evolution may be expected to display similar types of suboptimality or mal-adaptation. Insights from the theory of biological evolution also help to illuminate some areas of controversy with regard to Hayek's theory of cultural evolution, including: Hayek's advocacy of gradual change; the question of what selective forces drive the process of cultural evolution; and the alleged conflict between group selectionism and methodological individualism.     

Employer Liability Under the Communications Decency Act: Developing an Effective Policy Response

Contrary to many published reports, a significant portion of the CDA was left intact after the Reno v. ACLU decision, and the intact portion prohibits a number of uses of telecommunications equipment. This article reviews the issue of employer liability under the Communications Decency Act of 1996 and discusses the development of an effective policy response.     

The rules of abstraction

Friedrich Hayek’s work on spontaneous order suggests that the emergence of a spontaneous order requires the existence of abstract rules of conduct. But how much abstraction is required? Abstraction exists on a gradient, from the highest specificity (pertaining to particular persons and narrowly defined circumstances) to the highest generality (pertaining to all persons in all circumstances). If rules create order by coordinating expectations, either end of the spectrum is undesirable; the most specific and the most abstract rules fail to provide decision makers with useful guidance. This article argues that rules that foster coordination must be characterized by an intermediate degree of abstraction. This conclusion will be explained and applied to law, language, and etiquette in order to draw out the similar character of rules across various contexts. The article concludes by discussing four properties that rules of intermediate abstraction must also possess to foster spontaneous order.